Interest Rates: Are They Too High to Build a New Home?


Building a new home is a big deal. The homebuilding journey is exciting and full of decisions; but in the end; you’ll have a home that’s completely unique to your wants and needs.

But before the foundation can be poured, you have to make important financial decisions. Many of our customers have concerns about building with today’s higher interest rates. 

In this blog, we address your fears surrounding high interest rates, and help you feel more confident about making the decision to build the home of your dreams.

What Are Interest Rates?

Interest, in basic terms, is the cost of borrowing money. The interest rate is the amount a lender charges the borrower, and is a percentage of the amount loaned. The amount you pay in interest on a mortgage depends on the type, size, and duration of your loan. A conventional loan, for example, is a type of loan that requires a 20% down payment, and monthly payment thereafter. 


Interest rates fluctuate based on a number of factors like the cost of the home, the loan term, the amount of your down payment, economic strength, inflation, and government policy. 


In 2023 and into 2024, we’ve seen a rise in interest rates that have been a hot topic of discussion among prospective homebuyers. Many have expressed they feel the need to put their new home dreams on the backburner, and wait for interest rates to go back down. Others fear that rates will never go down, so they’ve taken themselves out of the home building game entirely. 


So, is now a bad time to build a new home? Let’s talk through it. 

The Relationship Between Interest Rates and the Cost of a New Home

In 2019 through 2021, interest rates were at an all time low. We saw a boom in the housing market almost everywhere. People were buying and selling at a rapid rate, and more new homes were being built. 

As a result, the demand for building materials skyrocketed. The industry as a whole experienced material shortages and some significant cost increases, especially in lumber. Despite the rise in the cost of building materials, most homeowners took advantage of historically low interest rates. 


It’s true that the lower the mortgage interest rate, the less you pay over time for a home. And the higher the interest rate, the more you’ll pay over time.


But, it’s also true that interest rates go up and down based on the current economic climate.  Interest rates on their own won’t change the cost of building materials including lumber, roofing, tile, and plumbing. 


What we want you to take away from this is: Interest rates can go down, but the cost of building materials is likely to only go up. If you’re financially able to weather the extra costs of a higher interest rate for a few months, you can refinance your loan when rates go down. 


We understand that everyone’s financial situation is different. If you have questions about whether or not building a home is right for you, talk to us! We’d be happy to help you explore your options. 

Ways to Reduce the Cost of Your New Home

Building a new home versus purchasing an existing home is usually more expensive. However, there are financial benefits to a new home including avoiding costly repairs, increased energy efficiency, increased safety features, and a higher resale value. 

When our customers are hesitant to build because of high interest rates, we work with them to find ways to reduce the cost of their build, and reduce the amount they have to borrow.

Here are just a few ways you can reduce your costs on a new build:

Build Your Home on More Affordable Land

We often see prospective homeowners that have their hearts set on a huge piece of land that takes (sometimes) $50,000-$100,000 to prep. So before anything can be built, they’ve eaten up a chunk of their total budget. To get the home of your dreams, consider a smaller or more affordable piece of land, or a lot that is already developed and ready to be built on. 

Downsize the Home’s Total Square Footage

We aren’t suggesting that you get rid of spaces that are important to you! But, consider making certain spaces more multifunctional. Rooms that have more than one use save money, energy, and space.

Consider Fewer Upgrades 

We encourage you to build the home of your dreams that also fits your budget. When you build with us at Modern Structure, we help you select finishes that match your vision, but won’t break the bank. If you’re set on tall vaulted ceilings with exposed wood beams, let’s do it. We can always find somewhere else to shave expenses.

Building a New Home is Still a Smart Investment

Instead of focusing on interest rates alone, be sure to consider the long term financial benefits of new home ownership and the resale value of the home. With the current lack of homes on the market, building a new custom home is still a smart investment. Don’t let high interest rates scare you away from moving forward. With the guidance of an experienced home builder, you can still build a new home within a budget you’re comfortable with. 

When you’re ready to talk about your plans to build a new home, call us! We build completely custom homes in the Evansville, Indiana area. To set up a free building consultation, fill out this short form, and we will get in touch.